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Suppose that the United Kingdom has no restriction on capital flows and wants to keep the value of GBP stable (i.e., no currency appreciation or
Suppose that the United Kingdom has no restriction on capital flows and wants to keep the value of GBP stable (i.e., no currency appreciation or depreciation). Under this framework, the United Kingdom also wants to adopt an expansionary monetary policy (i.e., lowering its interest rate) to stimulate its economy. Will the monetary policy be successful? Why? What would be the likely outcomes if the United Kingdom actually lowers its interest rate?
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